Where to Invest $1 Million Right Now
Six experts offer investment ideas for a post-pandemic future
Illustration: Isabel Seliger
By Devon Pendleton, Edward Robinson, Benjamin Stupples, Felipe Marques and Alexander Sazonov
November 27, 2018 | Updated on March 5, 2021
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The Covid-19 pandemic and its impact have dominated investment ideas over the past year, but with more than 270 million vaccine shots given
and lockdowns easing, expectations are rising for a return to a new normal. With that in mind, our panel of experts recommend infrastructure stocks, mobile-home parks and equities to fulfill energy-storage needs. There are also more unusual and potentially fun-filled opportunities, for those fortunate to have the money to invest: vintage Mercedes, soccer jerseys and music royalties.
Take a look at the stock market right now and it’s hard not to see a bubble is starting to form, especially in tech shares. Although we think it could continue, what happened recently on Reddit’s stock forums was really frightening. We’re looking for assets that represent solid value over time, and one sector we have a strong conviction about is infrastructure stocks: airports, railroads, toll roads, energy pipelines, and utilities.
These are bedrock stocks that demand patience from investors. But they have relatively low risk, and there are two main reasons why we think the timing is right for them now. First, as Covid-19 vaccines roll out and lockdowns end, we believe there will be a surge in economic activity. In the U.S., for instance, rising demand for goods and services will be a source of growth for railroads that carry freight. And a renewal of travel should boost airport shares, which have been seriously beaten down in the last year.
Second, infrastructure shares are at their most attractive valuations in more than a decade. Our analysis shows that the sector’s price-to-book ratio, which essentially tells you how expensive the shares are, is about 40% cheaper than equities in general. While company earnings comparisons are distorted by the pandemic, even on other measures the sector looks cheap.
The best value of all may be Japanese railways. There was a collapse in ridership, of course, last year. But there aren’t too many listed ones, and given their importance to the economy, buying the shares is a way to play the revival of the entire country. It’s possible that many of Japan’s commuters will not return as they continue to work from home but we think the market is underestimating the volume of workers that will eventually return to their offices.
Another way to play: Collectors are going bananas for vintage soccer club shirts. I’m a huge Manchester United fan and a few years ago I bought a team shirt from 1995 for £250 ($350). Now I see it for sale at £1,000. The key is finding shirts with a story behind them. That shirt was a black one that had the number and name of Eric Cantona, the French player who was sent off during a match at Crystal Palace and then proceeded to kung fu kick and punch a fan in the stands. Indeed a notorious and unfortunate incident, but it's that moment which has made the shirt more valuable. The nice thing about these assets is they tend to rise when the clubs are about to win a championship and fans want to show their love. These shirts can be found on eBay and other online auction sites.
We see a lot of attraction in real estate for manufactured housing — or what you might call mobile home parks. It’s an area many institutions are starting to wake up to. The returns are ridiculous. Over the last decade, investors have seen appreciation as high as 600% to 700%.
When you look at the demographics, there’s logic to it. Baby boomers have had a huge economic impact during each decade of their life. Over the next 12 years, the youngest of the boomers are turning 65, so 20% of the U.S. population will be over 65. That means a high percentage of people selling homes to capture liquidity and becoming renters, or seeking lower-cost housing. A mobile home is a third of the cost of a stick-built house. The average tenure in these parks is 15 years and occupancy rates are high nationwide. Renters tend to be older, fiscally conservative and capitalized adequately and you don’t see problems with rent abatement.
There are about 50,000 of these manufactured home parks in the U.S., but there’s only been about 10 developed in the past decade. Most city councils aren’t very excited about a brand new trailer park and there are zoning restrictions so it’s pretty hard to build a new park. Those that remain dominate the space. Large investors like Zell’s Equity LifeStyle Properties and Sun Communities still only control 5-6% of the market; 95% are mom and pop operators. It’s highly fragmented. That’s the definition of opportunity for the private-equity world.
Another way to play: Investors should consider the Mercedes Benz 300 SL. These models were manufactured between 1955 and 1961 and really represent the gold standard for classic car collectibles. If the car market migrates higher, they will be some of the first to rise in value. If the market declines, these models will typically experience only about 30% to 50% of the general market decline. And the Mercedes is recognized worldwide and followed by the global collectible market, not just limited to U.S. buyers, so that serves to increase demand.
Depending on condition, they tend to sell for about $800,000 to $1,500,000 most years. We’ve seen a drop in price in the last 24 months of about 15% to 20%, as we have across the spectrum of classic-car collectibles, so this may present a great entry point assuming you can find a willing seller.
Angel investing in startups is a really fun and exciting area. Historically getting into one of those opportunities at that early stage would require $50,000 or $100,000, but what’s evolved over time is the idea of syndicates. There are now opportunities for lots of people to invest smaller amounts — $3,000, $5,000, $10,000 — in small companies through angel investor networks or crowdfunding platforms like SeedInvest or AngelList.
There’s a new little cottage industry of angel syndicate leads whose job it is to go out and look for early-stage companies. As they become more successful, they’re able to invest your money alongside well-known venture capitalists and oftentimes at better terms than if you’d invested directly into the VC firms. The syndicate lead will typically take a 20% to 25% carry once the company sells, but there’s no 2% administration fee and the syndicate lead does all the due diligence on deals.
The recommendation from most people who do this professionally is to make multiple, smaller investments annually. You just don’t know which one is going to be the next Uber. Hopefully you’ll get a couple breakouts and that’s where you’ll make all your returns. The time horizon is long, you really should be able to look eight to ten years down the road.
One of the really exciting things about this is that you can look for these really crazy ideas that people are building companies around. I’m invested in a company that’s building computerized virtual-reality contact lenses. It’s cutting-edge science and it’s super fun.
Another way to play: I like experiential investments. I know a lot of people who’ve bought ten to 20 homes all over the world that they go use but then they AirBnB it out to pay for it. They absolutely love it. They’re covering the cost of maintaining it, but then they’re also participating in the appreciation of the asset itself. You can go to Turks and Caicos whenever you want and then rent it out for the rest of the time and then take off and go to Rome, Madrid, Colorado or wherever. We have a house in Aspen and a local property manager who comes and maintains it and makes sure everything is ok. We only rent it once a year, for two weeks, and it literally pays for all our operating costs for the year.
Our view is that the world as a whole won’t grow a lot in coming years, so the way to get attractive returns is looking for regions where growth will stand out. And for that we recommend buying stocks in emerging Asia countries outside of China. Singapore, Indonesia, Vietnam and even India are all very promising, and we’re confident that’s where growth will be.
Two themes in particular have caught our attention: The first is education. The average spending with education in the region is much higher than other emerging countries, we’re seeing world-class universities moving to Asia, but the market is still in its early years and offers a lot of opportunities for new companies. The second is finance, in particular insurance. A lot of these countries don’t have robust public social networks, so there’s room for private players and the market is still under-penetrated.
Another way to play: One of our main investing points in the world today is looking for assets with limited supply. And my favorite one is New York real estate. The pandemic brought a lot of questions, the mix of people in the city will probably shift – with billionaires moving to Florida – but I’m confident demand will still be there, with the safeguard of not having sudden supply increases. Covid also created an entry point, after years of rising prices; I won’t risk saying when prices will go back to climbing the way they were before the pandemic, but if you’re a good negotiator and patient, it’s a good moment. In a time when rates worldwide will remain close to zero, it’s the kind of investment that gives you 6-8% return above inflation that you can also boost through leverage.
We recently invested in a fund in the deep-tech sector. We often think about capitalizing on changes relating to consumers when people talk about tech, but this area is business-to-business where there’s a whole load of things going on in the background with companies. Many banks, for example, have evolved the online interfaces customers can see, but they’re operating off creaking infrastructure behind the scenes. Deep-tech companies in this space are setting up infrastructures that sit on a cloud-based system, making them a lot more scalable.
None of these changes are visible to the consumer, but they help to manage whole processes for institutions across all sorts of areas, including a lot of regulatory and compliance work. So it’s a very interesting space to get into. To get exposure, you do need to know the right fund managers.
Another way to play: I’ve always been fascinated by the economics of the music industry — plus I’ve often thought it would be great to be part of a fund that owns the back catalogue of all your music heroes. Royalties can give very strong and predictable revenue streams, but it’s not just about buying an asset and letting the money roll in. We’ve talked to a manager in the past where they take a very active role in buying songs and then doing something, like making them the music of a TV ad, and that can just catapult. We’ve all been there thinking, “I really like the song in that ad,” and then you find yourself searching for it — and the song ends up in your music playlist. So it’s all quite connected if you’re proactive.
In a world where people drive electric vehicles and have solar-powered homes, we will produce and consume energy in a very different way than in the past. The current centralized network that connects large power plants with consumers is being replaced by a complex, computer-driven network with small producers and consumers of energy. The network will be able to adjust the flow of energy on demand, thus increasing efficiency.
Operating this network requires complex algorithms and huge battery capacities to store energy. This is a new market with huge long-term potential, because a comprehensive solution will solve the problem of unpredictability of energy sources based on wind power or sunlight. Around $1.2 trillion in new revenue opportunities for integrated storage is expected to be deployed by 2040, according to Bloomberg New Energy Finance estimates.
I would invest in shares of companies that already use artificial intelligence for optimization of energy flows and storage. For example, Stem, which recently became public via a SPAC merger with Star Peak Energy Transition Corp. I like that Stem has both energy storage and IT solutions on single platform and its IT revenue is based on subscription model with long term contracts. Wood Mackenzie Energy Storage Service expects that capacity of installed batteries will grow 25 times over the next 10 years globally. That promises exponential growth in market capitalization for market leaders.
Another way to play: I believe that the U.S. online sports betting industry is at the beginning of a big growth cycle. A federal ban on such betting was lifted in 2018, and JP Morgan estimates that the market will grow from $1.1 billion to $9.2 billion over the next 5 years. Classic casinos were completely closed during the pandemic. People had no place to go but to online bookmakers, which led to exponential revenue growth in this segment. The most promising business model is the combination of streaming sports events and betting on them, which FuboTV is now actively developing. The industry has already caught the attention of investors after Michael Jordan became a shareholder and advisor at DraftKings.
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